Sentiment softened 0.7 per cent last week following two consecutive weeks of gains as measured by the weekly ANZ-Roy Morgan survey.
ANZ economist David Plank said the results of last week's survey were mixed.
There was a sharp 5.5 per cent drop-off in the indicator that asks whether it's a "good time to buy a major household item" but sentiment about current and future economic conditions lifted.
Despite ongoing interest rate hikes and soaring inflation, consumers have regained confidence in "current economic conditions", with the sub-index lifting by 24.5 per cent in the past three weeks.
However, all sentiment sub-indices remained well below the long-run average, with only "future financial conditions" in positive territory.
Mr Plank said consumers were likely to remain cautious until wages started growing in real terms.
"It is important to remember that this caution hasn't actually been reflected in a pullback in spending - at least not yet," he said.
This follows sharper-than-expected growth in retail sales.
Sales rose 1.3 per cent in July - sharply higher than the 0.3 per cent increase expected by most analysts - suggesting consumers are still spending despite rising living expenses.Â
Home building approval data, due to be released by the Australian Bureau of Statistics on Tuesday, is expected to remain subdued due to surging building costs and interest rate hikes.
St George economist Jameson Coombs expects successive interest rate hikes to soften demand for new housing and lead to a drop off in the construction of new homes and buildings.
Mr Coombs anticipates a three per cent decline in approvals in July following the 0.7 per cent contraction in June.
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